Good service isn’t hard to recognize. It can be seen when an attentive waiter offers a free second serving to patrons who have quickly cleaned their plates, or when a clothing retailer arranges fittings at your office to help out a tight schedule. Sometimes it comes in the simple form of a complimentary coffee offered by a barista who notices you having a bad start to the day.

Not-so-good service is also easy to spot. But the causes of poor customer satisfaction are not always obvious, especially at service companies. Building upon an earlier IBJ article (see Service Complexity: Managing a House of Cards, May / June 2010), this article explores how service-company attempts to win market share by offering numerous customer options can be counterproductive and actually create consumer anxiety.

Good service anticipates your needs and solves problems. It is prompt, efficient and exceeds expectations. And it typically comes from well-trained employees, who often remember your name and preferences and are empowered to manage your consumer experience without handing you off to someone else. The companies we think about when we discuss good service—hoteliers like Four Seasons and Ritz-Carlton, retailers such as Nordstrom and Publix, insurers USAA and Amica—appear in the upper echelons of rankings of top service providers. Year-after-year, firms like JD Power along with publications like BusinessWeek examine the service elite to help us understand why they impress their customers. See Table 1 for a summary of firms appearing in BusinessWeek’s Service Winners rankings in at least three of the last four years.

Table 1 –BusinessWeek Service Winners, 2008 – 2011

2008

2009

2010

2011

1 – USAA

2 – LL Bean

4 – Lexus

6 – Starbucks

10 – Ace Hardware

12 – The Ritz-Carlton

13 – Amica

14 – Enterprise

15 – Publix

16 – Nordstrom

17 – Southwest

20 – Cadillac

21 – Apple

23 – Amazon.com

24 – JW Marriott Hotels

25 – True Value

1 – Amazon.com

2 – USAA

4 – Lexus

5 – Ritz-Carlton

6 – Publix

10 – Ace Hardware

12 – Four Seasons Hotels

13 – Nordstrom

14 – Cadillac

15 – Amica

16 – Enterprise

20 – Apple

23 – True Value

24 – LL Bean

25 – JW Marriott

1 – LL Bean

2 – USAA

3 – Apple

4 – Four Seasons Hotels

5 – Publix

6 – Nordstrom

7 – Lexus

8 – Ritz-Carlton

10 – Ace Hardware

11 – Amazon.com

13 – Starbucks

14 – Amica

18– American Express

19 – Enterprise

22 – True Value

24 – Southwest Airlines

1 – USAA

2 – LL Bean

4 – Lexus

6 – Starbucks

10 – Ace Hardware

12 – Ritz-Carlton

13 – Amica

14 – Enterprise

15 – Publix

16 – Nordstrom

17 – Southwest

20 – Cadillac

21 – Apple

23 – Amazon

24 – Marriott

25 – True Value

16 Firms

15 Firms

16 Firms

16 Firms

SOURCE: BusinessWeek

Product companies that recognize the need for exceptional service to help differentiate their business also appear on these reviews. This strategy is referred to as “servitization,” and it is why companies such as Lexus and Apple really make the grade when it comes to their product experience. In fact, many buy their product because of the service. In addition to providing great service, of course, these companies offer a simple and uncomplicated value proposition, meaning customers have a very clear idea of what to expect when walking in the door of one of these businesses.

Now, let’s focus on mediocre service. Go into your local bank and ask a customer service representative (or teller in old bank-speak), about the features and benefits of a particular credit card or bank account. In most cases, you won’t get a direct answer. Instead, you will probably be referred to a customer service specialist and have to book an appointment. And when you meet, the specialist will probably refer to the bank’s website for information or support in answering your question. Why? The challenge we are facing is one of complexity, and the impact it has on the customer experience.

Complexity can be a good thing. But when it comes to servicing customers, it is generally accepted that complexity reduces satisfaction. In other words, the proliferation of products in many service-based organizations prevents them from staying true to who they are—a service company. Service vision becomes clouded and the overall strategy is no longer clear to employees or customers.

Modern banks simply have too many products and services for front-line staff to understand and properly explain to a customer. Furthermore, tellers are a blend of part-time and full-time employees, with a turnover ranging between 20 per cent and 50 per cent. Think about that the next time you see the row of customer service reps at your local bank. At least two have likely just emerged from training in recent months. While culture and enthusiasm have a significant impact on employee performance, tenure, training and job scope are the key factors here. A third problem is customer knowledge. The number of products offered by any organization can obviously change. But as noted in our earlier work, banks typically have dozens of different credit cards, accounts, loans and investment products. And through online research, referrals and discussions with friends, family and peers, customers may know more about particular products or services than bank employees. Put in this context, it is easy to see why banks struggle for solid customer service ratings. By their own design, the deck is stacked against them.

We researched the number of offerings at major North American banks. This was no simple task. But based on what we could see online at the time of our survey (see Table 2 and Table 3), Royal Bank wins the complexity award for credit cards in this country, offering 19 different products (not including affinity or corporate cards). Scotiabank offered the least number of cards (9). What about accounts? BMO beat RBC by a field goal, 14-11. On average, the US banks were even more complex in their product offerings. Wells Fargo deserves credit for providing a simple summary of their seven cards that most Customer Service Representatives and customers alike would be able to understand relatively quickly. But Bancorp offered 29 cards. Really? Could any one person in the institution talk intelligently about all of them? And do customers really want or need that level of choice? More on Umpqua and their four cards later.

Table 2: Bank Credit Cards and Accounts, Canadian Banks

Bank

Number of Credit Cards

Number of Accounts

Bank of Montreal (BMO)

11

14

Canadian Imperial Bank of Commerce

16

10

Royal Bank

19

10

ScotiaBank

9

11

Toronto Dominion Bank

15

11

Table 3: Credit Cards at Major US Banks

Bank

Number of Credit Cards

Bank of America

27

CitiBank

26

US Bancorp

29

Wells Fargo

7

Umpqua Bank

4

The term we use for product bias in a service organization is “productization.” While several definitions of productization exist, they generally refer to the act of bringing an idea or concept to a marketable product, or its commercialization. Built off the trend towards servitization in product companies, we offer an alternative definition:

Productization is adding value in service organizations by providing products that complement their service offering.

That, of course, is the best case. After all, productization is often left unchecked, resulting in a product bias in a service firm’s innovation strategy and the proliferation of products offered by that company to the point of confusion. Think about a restaurant with an ever-expanding menu, which takes customers longer and longer to peruse, and leads to more anxiety in making a dinner selection. Wait staff, meanwhile, find it more and more difficult to remember the features of each offering (such as dietary information and wine pairings, not to mention whether or not items are a house specialty). Another example: Most airlines have many different aircraft in their collective hangar. Consequently, they need multiple training streams for flight crews and maintenance technicians, and service parts for all of those aircraft in multiple locations. This makes catering, ticketing and boarding all more complicated.

Some might suggest that the problem is related to a lack of training for front-line staff. We think it runs deeper. Training is related to turnover, and higher turnover can result from working in stressful, challenging environments with no support or solutions in sight for employees.

CVS Pharmacy went through a significant initiative in 2002 to simplify their prescription filling and make the process very robust and predictable for customers. That initiative led to less waiting and significant improvements in customer service scores. As Andrew McAfee pointed out in a related case study, CVS also witnessed less staff turnover. Happier customers and an improved process made CVS a better place to work. And after simplifying their prescription process, CVS saw revenues increase chain-wide by $700 million.

The Service Profit Chain concept was introduced in a 1994 Harvard Business Review article (Putting the Service-Profit Chain to Work by Heskett et al), which discussed the direct connection between employee satisfaction, training and capability and customer enthusiasm, where that enthusiasm led to increased customer loyalty, profit and sales for the firm. Excessive complexity produced by productization takes away from the employees’ ability to effectively manage all service encounters. In fact, the outcome of the service encounter itself is uncertain.

Sadly, complexity is embedded in our culture. Pack rats exist in our homes and companies alike. If someone offered to turn your two-car garage into an eight-car garage for free, you’d probably start dreaming about how much extra stuff you could store. Information technology is part of the problem. IT systems have such cheap and mammoth storage potential that we keep every piece of data produced over the last 15 years. We don’t delete files from our 2GB USB thumb drive. Instead, we transfer everything to a 16GB drive that cost us $10. It’s like a George Carlin nightmare. On the corporate front, of course, the issue isn’t about too many mugs in the kitchen cupboard. It involves legacy products and services, which are very difficult to wind down because managers are deathly afraid of alienating the three per cent of customers who still use them. Worse yet, some of the obscure content on our menu is there due to a lack of robustness in our innovation process. We liked an idea, rushed it through, and now the 1.0 version is enjoying marginal adoption. Most 1.0 ideas don’t really work, but we launch them anyway.

Are we a product or a service organization? If the intent is to use productization to make a service organization more product-focused, then so be it. A certain amount of product focus by a service company is certainly reasonable. Westin Hotels did it with their Heavenly Beds and Baths program, which greatly enhanced the guest experience (although one could say they went too far with their Heavenly Pet program). Customers of Starbucks and other high-end coffee purveyors have long been able to take home the chain’s beans and machines, creating that barista experience at home. Four Seasons Hotels offers a Suite Drive program at their Beverly Hills Los Angeles location, giving guests the opportunity to drive a Bentley or other premier automobile while staying in select suites in the hotel. In what is really a product in a service for a product, owners of Lexus and other vehicles buy travel mugs, hats and other affiliation merchandise demonstrating their loyalty to the brand.

Using products to complement an already good customer encounter is one thing. But relying on productization as a differentiator is unlikely to be a defensible position. After Westin launched the $30-million Heavenly Bed initiative, competitors such as Four Seasons, Starwood and Marriott began offering improved beds and baths as well. Competing on products in a service environment is expensive and difficult to sustain. And having too many product offerings leads to complexity and significant service issues in customer-facing environments, such as:

Training issues for employees who need to understand and be able to ‘talk’ the products.

Bad decision risk and anxiety for customers who need to choose among the myriad of product offerings, often having to lock into a long-term ‘service’ agreement (for example, in mobile phone contracts).

Consumption of resources in Marketing, IT, Finance and Operations as we manage these products.

Dilution of vision and brand. Do we want to be known in our segment for great service or a variety of products?

So, we’re too complex. How do we fix it, and then prevent it from happening again? The answer lies in understanding what customers really value, which is tougher than it sounds.

The Rules of Productization

The simply key to managing complexity in services is to eliminate it where possible, and then manage what is left very well. With that in mind, we suggest the following two guidelines when considering productization in a service environment:

‘Product’ satisfaction in a service needs to be subordinate to good service.

The product’s capability and reputation should complement the service delivery and customer perception of the service.

These are simple rules that support a service philosophy. They are a filter to use when approving additional products or services. Think about the business case for offering a new type of credit card that offers measurable benefits to targeted users. It might convince some customers from other banks to switch service providers. Then again, credit card customers don’t necessarily need to bank with their credit card provider. And other banks can simply launch a competing card.

Now, imagine a bank that is the benchmark for service in the financial industry. Customers talk about time dedicated to personalize an encounter. They enjoy the layout and appeal of the bank’s branch designs. They like the extended operating hours and easy-to-use website and on-line banking applications. Customers appreciate the bank’s community engagement. Parents introduce their children to the bank, which is honoured to serve dozens of three or even four-generation families. In this environment, the products offered support service. The bank serves new families, mature families, students and executives who travel. What is the right number of credit cards for this bank to offer? We suggest the appropriate number is smaller than most would think—one.

Let’s get really radical here and suggest a smart card that works for everyone with limits based on banking history and ability to pay. The colour of the card (standard, gold and platinum) is based on your credit limit while annual fees and interest rates are based on the colour of your card. Any cash back or rewards are based on user spending patterns. Simply put, everyone gets the same card, but what happens with it depends on card users, not the perceived needs of your segment as imagined by the bank. It is targeted at individuals only and customer reps can easily know and explain the product. Meanwhile, the bank saves on training, market research, brochures and leaflets. And let’s not forget how much simpler the website could be.

When we simplify, we reduce complexity. Employees are consequently more knowledgeable. Staff and customer anxiety drops as people understand the system better. The bank will have less dilution of resources. Employees are better mobilized around core goals. You can almost hear bankers gasping at the lost opportunity to differentiate via products. But that’s where good old-fashioned service comes back into play. You differentiate by offering fewer products and knowing them inside-out, which allows you to treat customers with dignity, respect, recognition, speed and efficiency, something that is virtually impossible to do by a bank with nine credit cards and 11 different accounts.

When it comes to this strategy, no bank has gone all the way. But Umpqua Bank is getting close, having grown from an organization with six branches and $140-million in assets in 1994 to one with more than 180 branches and $10 billion in assets by 2011. Widely regarded as one of the best banking brands in the country, employees are trained by Ritz-Carlton service experts. Connecting employee loyalty back to service and customer enthusiasm, Umpqua has been on CNN’s list of 100 best employers for more than a quarter century. And with only four credit cards, it is a safe bet employees can talk the product with any perspective customer.

It may sound like we are picking on the banks, but we aren’t. Productization at banks is just very visible. Understanding how much anxiety and confusion we create for our customers via a myriad of products and services is an exercise for all of us. Even something as simple as renting a movie involves bad decision risk. Everybody stands to lose when a customer doesn’t like what they picked. And the risk of disappointment is orders of magnitude higher for service companies that go overboard on product offerings. What do bank customers really value? Most of us would say friendly, efficient service along with knowledgeable staff and competitive products. Note we used the word “competitive,” not voluminous, prolific, or expansive.

A Bain study recently indicated that most top-level executives believe their businesses are too complex. The following steps can help them service customers like the firms in the BusinessWeek and J.D. Power rankings.

Review the vision and direction of the organization. If you use terms like “customers first” or “provide value,” survey employees to see if they understand those statements, and more importantly, appreciate their role in realizing those values.

Reduce complexity by understanding what type of customer you serve.. What elements of service attract those customers: convenience, value or prestige? What elements of service offer no value or even repel those customers?

Eliminate the products that do not support the above vision, complement our service or appeal to our identified customer. This is the most challenging part of the exercise, as many of those services or products carry an emotional legacy to current members of leadership. Look also for symptoms of brand or service dilution, where the value of the product is unclear or we struggle to clearly represent that product.

Apply freed resources to train and empower front line employees to more effectively represent the firm and reinforce the service mentality. Market what you do really well.

Jealously guard against the introduction of inappropriate new products and services. Keep the spirit of innovation alive, but focus on delivering value.

Our goal in presenting this further discussion of our work is to enable firms to break the paradigms of service performance that encumber too many companies. By reducing the complexity that stems from productization, service firms can focus on sending a clear message the market understands, and back it up with simple stellar service. Banks, insurance companies and airlines can have top level service reputations. Just ask Umpqua, Amica, USAA and Southwest Airlines. Better yet, ask their customers.

About the Author

Barry Cross is a lecturer in Lean at Queen’s University School of Business. He previously held executive positions with Magna International, Autosystems and Dupont. He is the author of Lean….Read Barry Cross's full bio